Diageo To Settle Korean Tax Evasion Dispute

The museum room is seen at the Diageo Cardhu distillery in Scotland. Diageo has decided to pay more than $200 million in back taxes rather than continue a six-year dispute. Photo: Reuters

One of the world’s largest liquor makers, Diageo, has decided to pay what it owes the Korea Customs Service (KCS) in back taxes totaling 200 billion to 300 billion won ($181 million to $272 million). The British-based company has been engaged in a six-year dispute with the customs agency for supposedly avoiding tariffs by underreporting the import prices of its whisky products, local reports said.

The maker of Johnnie Walker and Guinness said on Wednesday that it will opt for a settlement with KCS mediated by the Seoul Administrative Court, according to the Korea Times. The customs agency had previously imposed 500 billion won ($454 million) in back taxes on Diageo during the dispute, and the court recommended last August that to make Diageo more amenable to settlement, it should reduce that amount by 40 percent to 50 percent. KCS had indicated that it would accept the court’s recommendation.

"We decided to settle the case once and for all because we want to put it behind us and move forward," said a Diageo official who declined to be named to the Korea Times. "We have reached an agreement in principle with the customs agency to close the case outside of court. It will take about two months for us to estimate exactly how much taxes we will pay."

KCS said in 2009 that Diageo falsified its custom reports on its imported whisky prices, underreporting prices as low as 50 percent that of other liquor firms in order to pay less in customs duties, according to the Korea Times. Diageo protested that claim in 2010 and filed a complaint with the Seoul Administrative Court.

In 2011, the U.S. Securities and Exchange Commission also found Diageo guilty of violations of the Foreign Corrupt Practices Act for more than six years of improper payments to government officials in India, Thailand and South Korea.

The SEC said Diageo’s South Korean unit paid more than $86,000 to a customs official, as well as hundreds of small payments to other officials, who helped with transfer-pricing negotiations with the South Korean government in 2004. Diageo agreed to pay more than $16 million in fines to the SEC for those violations back then, according to the Wall Street Journal. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices and other deceptive devices to disguise the true nature of the payments,” said Scott Friestad, associate director of the SEC’s Division of Enforcement in a press release.